<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[x] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
COMPUTER NETWORK TECHNOLOGY CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
COMPUTER NETWORK TECHNOLOGY CORPORATION
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
<PAGE>
LOGO
COMPUTER NETWORK TECHNOLOGY CORPORATION
605 NORTH HIGHWAY 169
MINNEAPOLIS, MINNESOTA 55441
(612) 797-6000
April 6, 1998
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of the Shareholders
of Computer Network Technology Corporation (the "Company") at the Marquette
Hotel in the IDS Center, 50th Floor Universe Room, 710 Marquette Avenue,
Minneapolis, Minnesota, on Tuesday, May 19, 1998, at 10:00 a.m.
The Notice of the Annual Meeting and the Proxy Statement that appear on the
following pages describe the matters scheduled to come before the meeting. At
the meeting, I will discuss the Company's performance in 1997 and report on
current items of interest to our shareholders. In addition, certain members of
the Company's Board of Directors and officers of the Company, as well as
representatives of KPMG Peat Marwick LLP, the Company's independent auditors,
will be available to answer your questions.
I hope you will be able to attend the meeting in person and look forward to
seeing you. PLEASE MARK, DATE, AND SIGN THE ENCLOSED PROXY AND RETURN IT IN
THE ACCOMPANYING ENVELOPE AS QUICKLY AS POSSIBLE, EVEN IF YOU PLAN TO ATTEND
THE MEETING. If you attend the meeting you may withdraw any proxy previously
given and vote your shares in person.
On behalf of your Board of Directors and the Company's employees, thank you
for your support of and interest in the Company.
Sincerely,
/s/ Thomas G. Hudson
Thomas G. Hudson
President and Chief Executive
Officer
<PAGE>
LOGO
COMPUTER NETWORK TECHNOLOGY CORPORATION
605 NORTH HIGHWAY 169
MINNEAPOLIS, MINNESOTA 55441
(612) 797-6000
-------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 19, 1998
-------------------------------------------------------------
TO OUR SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders of
Computer Network Technology Corporation, a Minnesota corporation, will be held
on Tuesday, May 19, 1998 at the Marquette Hotel in the IDS Center, 50th Floor
Universe Room, 710 Marquette Avenue, Minneapolis, Minnesota, beginning at
10:00 a.m. for the following purposes:
(1) To fix the number of directors at five and to elect five persons to the
Board of Directors to serve until the next Annual Meeting of the
Shareholders;
(2) To amend and restate the 1992 Stock Award Plan to, among other things,
increase the number of shares authorized for issuance by 800,000;
(3) To amend the 1992 Employee Stock Purchase Plan to increase the number
of shares authorized for issuance by 300,000;
(4) To ratify and approve the appointment of KPMG Peat Marwick LLP as
independent auditors for the year ending December 31, 1998; and
(5) To transact other business that may properly come before the meeting.
Shareholders of record on March 23, 1998 are the only persons entitled to
notice of and to vote at the meeting.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, AND
SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. IF
YOU LATER DESIRE TO REVOKE YOUR PROXY, YOU MAY DO SO AT ANY TIME BEFORE IT IS
EXERCISED.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Gregory T. Barnum
Gregory T. Barnum
Secretary
April 6, 1998
Minneapolis, Minnesota
<PAGE>
LOGO
COMPUTER NETWORK TECHNOLOGY CORPORATION
605 NORTH HIGHWAY 169
MINNEAPOLIS, MINNESOTA 55441
(612) 797-6000
----------------
PROXY STATEMENT
----------------
ANNUAL MEETING OF SHAREHOLDERS
MAY 19, 1998
GENERAL
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors (the "Board") of Computer Network Technology Corporation of
proxies to be voted at the Annual Meeting of the Shareholders of the Company
(the "Annual Meeting") to be held on Tuesday, May 19, 1998 at the Marquette
Hotel in the IDS Center, 50th Floor Universe Room, 710 Marquette Avenue,
Minneapolis, Minnesota, beginning at 10:00 a.m. and at any adjournments or
postponements thereof. This Proxy Statement and the accompanying proxy card
are furnished in connection with the proxy solicitation and are being mailed
to shareholders beginning approximately April 6, 1998. Shares represented by
properly executed and returned proxies will, unless otherwise specified on the
proxy card, be voted FOR all of the nominees listed in Item 1 and FOR Items 2,
3, and 4, as set forth on the proxy card, and be voted in the discretion of
the proxy holders as to any other matter that may properly come before the
meeting. A shareholder voting through a proxy who abstains with respect to a
certain proposal is considered to be present and entitled to vote on such
proposal at the meeting, and is in effect a negative vote, but a shareholder
(including a broker) who does not give authority to a proxy holder to vote, or
withholds authority to vote, on a certain proposal shall not be considered
present and entitled to vote on such proposal.
The proxy may be revoked at any time prior to its exercise by providing
written notice of revocation or another proxy bearing a later date to the
Secretary of the Company at the address set forth above or at the Annual
Meeting.
The Company will pay expenses incurred in connection with the solicitation
of proxies. Proxies are being solicited by mail and may also be solicited
personally, by telephone, by electronic mail, or by facsimile by directors,
officers, and other employees of the Company without additional compensation
to them. The Company has requested brokerage houses, nominees, custodians, and
fiduciaries to forward solicitation material to the beneficial owners of
Common Stock of the Company and will reimburse such persons for their
expenses.
Shareholders of record on March 23, 1998 are the only persons entitled to
vote at the Annual Meeting. As of that date, there were issued and outstanding
22,104,390 shares of Common Stock, the only authorized and issued voting
security of the Company. Each shareholder is entitled to one vote for each
share held. A majority of the shares of Common Stock outstanding and entitled
to vote shall constitute a quorum for purposes of the Annual Meeting.
<PAGE>
ELECTION OF DIRECTORS
(ITEM 1 ON PROXY CARD)
The By-Laws of the Company provide that the number of directors that
constitute the Board shall be fixed from time to time by the shareholders of
the Company and that directors shall be elected at the annual meeting and
shall hold office until the next annual meeting of shareholders and until
their successors are elected and qualified. The Board recommends that the
number of directors constituting the Board be set at five and nominates the
five persons named below for election as directors.
The accompanying proxy will be voted in favor of the election of the
following nominees as directors, each of whom is currently a director, unless
the shareholder giving the proxy indicates to the contrary on the proxy. All
nominees have agreed to stand for election at the Annual Meeting. If any
nominee is not available as a candidate for director at the time of the Annual
Meeting, the proxies will be voted for another nominee designated by the Board
to fill such vacancy, unless the shareholder giving the proxy indicates to the
contrary on the proxy.
Provided a quorum is present, the affirmative vote of the holders of a
majority of the voting power of the outstanding shares of Common Stock of the
Company entitled to vote on the election of directors and present, in person
or by proxy, at the Annual Meeting is required for election to the Board of
each of the five nominees named below.
NOMINEES TO THE BOARD
THOMAS G. HUDSON, 51 years of age, has been President and Chief Executive
Officer since June 1996, and a director since August 1996. From 1993 to June
1996, Mr. Hudson was Senior Vice President of McGraw Hill Companies, a leading
information services provider, serving as General Manager of its F.W. Dodge
Division, and as Senior Vice President, Corporate Development. From 1968 to
1993, Mr. Hudson served in a number of management positions at IBM
Corporation, most recently as Vice President Services Sector Division.
Mr. Hudson's IBM career included varied product development, marketing and
strategic responsibilities for IBM's financial services customers and
extensive international and large systems experience. He is a graduate of the
University of Notre Dame and New York University. He attended the Harvard
Advanced Management Program in 1990.
PATRICK W. GROSS, 53 years of age, was appointed director in July 1997. Mr.
Gross founded American Management Systems, Inc. ("AMS") in 1970 where he
serves as Chairman of the Executive Committee and Principal Executive Officer.
AMS is a management consulting and systems integration firm applying
information technology to business and management in both the public and
private sectors. Between July 1968 and May 1970, Mr. Gross served on the staff
of the U.S. Secretary of Defense in the Office of Systems Analysis. Mr. Gross
is Chairman of Baker & Taylor Holdings, Inc., a private company, and serves as
a director of Capital One Financial Corporation and Landmark Systems
Corporation. He is a graduate of Rensselaer Polytechnic Institute, University
of Michigan and Stanford University.
ERWIN A. KELEN, 62 years of age, has been a director since June 1988. Mr.
Kelen is President of Kelen Ventures and a partner of Camir Investments. He is
a private investor active in venture capital investments, investment
management and helping small companies grow. From 1984 to 1990, Mr. Kelen was
President and Chief Executive Officer of DataMyte Corporation, a wholly owned
subsidiary of Allen Bradley Co. Mr. Kelen is also a director of Printronix,
Inc., Insignia Systems, Inc., and CyberOptics Corporation. He is a graduate of
the Technical University of Budapest and the University of Minnesota Graduate
School.
LAWRENCE PERLMAN, 59 years of age, has been a director since June 1988. He
is Chairman and Chief Executive Officer of Ceridian Corporation and has held
that position for more than five years. Ceridian Corporation is a leading
information services company that serves the human resources, transportation
and electronic media markets. Mr. Perlman also serves as a director of
Ceridian Corporation, Seagate Technology, Inc., and Valspar Corporation. He is
a graduate of Carleton College and Harvard Law School.
2
<PAGE>
JOHN A. ROLLWAGEN, 57 years of age, has been a director since June 1993 and
Chairman of the Board since December 1995. Mr. Rollwagen is a private investor
and venture partner with St. Paul Venture Capital, a venture capital firm.
From January 1993 to May 1993, Mr. Rollwagen served as U.S. Department of
Commerce Deputy Secretary-Designate. Beginning in 1975, Mr. Rollwagen served
in executive capacities with Cray Research, Inc. ("Cray"). Mr. Rollwagen
served as Chairman and Chief Executive Officer of Cray from 1981 to January
1993. Mr. Rollwagen serves as a director of Minnesota Brewing Co., and several
private companies. He is a graduate of The Massachusetts Institute of
Technology and Harvard Graduate School of Business Administration.
MEETINGS AND COMMITTEES OF THE BOARD
The Board held seven meetings during 1997 and otherwise conducted business
by written resolutions signed by all directors. Each director attended at
least 75% of the total number of meetings of the Board plus the total number
of meetings of all committees on which he served, with the exception of Mr.
Gross and Mr. Perlman. Mr. Gross attended two of the three meetings of the
Board after joining in July 1997. Mr. Perlman, who attended 64% of the total
number of 1997 meetings of the Board and Committees on which he serves,
provided his input to the other directors on a regular basis.
The Audit Committee recommends to the Board the selection of independent
auditors, reviews the activities and reports of the independent auditors, and
reviews the internal accounting controls of the Company. The Audit Committee
is comprised of Messrs. Kelen, Perlman, and Rollwagen. The Audit Committee
held two meetings in 1997.
The Compensation Committee is comprised of Messrs. Kelen, Perlman, and
Rollwagen. The primary purpose of this Committee is set forth in the "Report
on Executive Compensation" contained in this Proxy Statement. The Compensation
Committee held five meetings in 1997 and otherwise conducted business by
written resolutions signed by the Committee members.
The Executive Committee possesses the power and authority to act on behalf
of the Board between meetings of the Board. The Board determined that the
Executive Committee was no longer required; therefore the Executive Committee
was disbanded in 1997.
The Board does not have a standing nominating committee.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive a retainer of $5,000
per quarter, plus reimbursement for out-of-pocket expenses incurred on behalf
of the Company. Accordingly, the non-employee directors were each paid a
retainer of $20,000 for 1997, except for Mr. Gross who received $8,723 for a
period of service commencing in July 1997. During 1997, each of the Company's
non-employee directors also received an option to purchase 20,000 shares of
the Company's Common Stock under the Company's 1992 Stock Award Plan, except
for Mr. Gross who received options to purchase 68,334 shares, as initial and
partial annual outside director option grants.
3
<PAGE>
SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 23, 1998, certain information
with respect to all shareholders known to the Company to have been beneficial
owners of more than 5% of its Common Stock, each director, each executive
officer or former executive officer named in the Compensation Table on page 8,
and all directors and executive officers of the Company as a group. Unless
otherwise indicated, each person named in the table has sole voting and
investment power as to the Common Stock shown.
<TABLE>
<CAPTION>
PERCENT OF
AMOUNT AND NATURE OF COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OUTSTANDING
------------------------------------ -------------------- ------------
<S> <C> <C>
Dimensional Fund Advisors, Inc.(/1/)
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401 1,359,200 6.15%
Thomas G. Hudson(/2/) 343,613 1.53%
Erwin A. Kelen(/3/) 479,577 2.15%
John A. Rollwagen(/3/) 274,167 1.23%
Lawrence Perlman(/3/) 180,833 *
Patrick A. Gross(/3/) 26,684 *
William C. Collette(/4/) 68,397 *
Peter Dixon(/5/) 63,989 *
Mark R. Knittel(/6/) 17,500 *
Scott A. McCourt(/7/) 29,708 *
Julie C. Quintal(/8/) 62,834 *
All executive officers and directors as
a
group (14 persons)(/9/)(/1//0/) 1,641,713 7.32%
</TABLE>
- --------
*Represents beneficial ownership of less than one percent of the outstanding
Common Stock.
(1) According to a Schedule 13G dated February 9, 1998. Dimensional Fund
Advisors, Inc. ("Dimensional"), a registered investment advisor, is
deemed to have beneficial ownership of 1,359,200 shares of the Company's
Common Stock as of December 31, 1997, all of which shares are held in
portfolios of DFA Investment Dimensions Group, Inc., a registered open-
end investment company, or in series of the DFA Investment Trust Company,
a Delaware business trust, or the DFA Group Trust and DFA Participation
Group Trust, investment vehicles for qualified employee benefit plans,
all of which Dimensional Fund Advisors Inc. serves as investment manager.
Dimensional disclaims beneficial ownership of all such shares.
(2) Includes 314,576 shares that may be acquired upon exercise of incentive
and non-qualified stock options that are currently exercisable or are
exercisable within 60 days. Also includes 390 shares held by Connecticut
General Trust Company as trustee of the Company's 401(k) Plan.
(3) Includes 186,667, 249,167, 153,333, and 26,684 shares that may be
acquired upon the exercise of non-qualified stock options held by Messrs.
Kelen, Rollwagen, Perlman, and Gross, respectively. These options are
currently exercisable or are exercisable within 60 days.
(4) Includes 58,875 shares that may be acquired upon exercise of incentive
and non-qualified stock options that are currently exercisable or are
exercisable within 60 days. Also includes 7,157 shares held by
Connecticut General Trust Company as trustee of the Company's 401(k)
Plan.
(5) Includes 60,624 shares that may be acquired upon exercise of incentive
and non-qualified stock options that are currently exercisable or are
exercisable within 60 days.
(6) Includes 17,500 shares that may be acquired upon exercise of incentive
and non-qualified stock options that are currently exercisable or are
exercisable within 60 days.
(7) In connection with the Company's 1997 acquisition of the Internet
Solutions Division of Apertus Technologies Inc., Mr. McCourt ceased being
an executive officer of the Company. Includes 29,374 shares that may be
acquired upon exercise of incentive and non-qualified stock options that
are currently exercisable or are exercisable within 60 days. These shares
are not included in the "All executive officers and directors as a group"
total.
(8) Includes 62,499 shares that may be acquired upon exercise of incentive
and non-qualified stock options that are currently exercisable or are
exercisable within 60 days.
(9) Includes 9,551 shares held by Connecticut General Trust Company as
trustee of the Company's 401(k) Plan for the benefit of three officers.
(10) Includes 1,221,798 shares that may be acquired upon exercise of incentive
and non-qualified stock options. These options, including those discussed
above, are currently exercisable or exercisable within 60 days. Includes
only executive officers and directors as of March 23, 1998.
4
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who own more than 10% of the
Company's Common Stock, to file periodic reports of ownership and changes in
ownership with the Securities and Exchange Commission. Based solely on its
review of the copies of such reports received by it and of written
representations from certain reporting persons regarding filings required to
be made by such persons, the Company believes that all persons required under
Section 16(a) to file beneficial ownership reports with respect to the
Company's Common Stock during 1997 or prior years complied with all such
reporting requirements, except for the February 1997 late filing of a Form 3
by Mr. B. D. Johnson (the Company's former Vice President of Marketing) to
report a stock option grant received in January 1997 upon becoming an
executive officer of the Company.
REPORT ON EXECUTIVE COMPENSATION
OVERVIEW
The Compensation Committee is responsible for recommending to the Board the
Company's executive compensation philosophy, for determining all aspects of
the President and Chief Executive Officer's compensation, and the review and
approval of recommendations for compensation paid to the other executive
officers. The Committee is also responsible for administering the Company's
stock-based compensation plans. The Committee is comprised entirely of
independent, outside directors. During 1997, the Committee was comprised of
Messrs. Kelen and Perlman. On February 14, 1997, Mr. Rollwagen also became a
member of the Committee.
The primary objectives of executive compensation are to provide compensation
that will attract, retain, reward and motivate a highly effective Executive
Team that will lead the Company in achieving its business goals in a highly
competitive and rapidly changing industry; to ensure that compensation
opportunities for executives are competitively positioned and yet reasonable
in light of the Company's objectives; and to emphasize and reinforce the link
of pay for individual and Company performance.
The Committee believes that the Company's executive compensation program
provides an overall level of compensation opportunity that is competitive with
comparably sized companies within the computer industry.
COMPONENTS OF EXECUTIVE COMPENSATION
The total compensation mix for executives consists of annual cash
compensation in the form of base salaries and annual cash incentives, long-
term incentives in the form of stock options to acquire Common Stock and
benefits. As a result, much of an executive's compensation is based upon the
financial performance of the Company. The following sections describe each
component of compensation.
ANNUAL CASH COMPENSATION: Includes base salary and annual incentives. For
1997, base salaries and annual target incentives of the executive officers,
other than Mr. Hudson, were recommended to the Committee by Thomas G. Hudson,
President and Chief Executive Officer, after consultation with the Company's
Vice President of Human Resources. Both salary and annual target incentive
(bonus) opportunities are established each year based on the executive's job
responsibilities, level of experience, overall performance and contributions,
future potential, as well as information obtained on competitive pay
practices. Comparative compensation data was derived from an analysis by the
Company of external compensation surveys encompassing companies of similar
size and industry, and from outside consultants. Depending on the position,
the annual incentives may be based upon a combination of the Success Sharing
Annual Leadership Bonus Plan, individual performance bonuses or sales
commissions.
The Success Sharing Annual Leadership Bonus Plan ("the Success Sharing
Plan") is an annual incentive program for all executives and certain other key
contributors. The Success Sharing Plan is tied to key performance measures of
the Company's success--specifically, revenue growth and pre-tax profit. The
5
<PAGE>
Compensation Committee believes that the level of bonus payouts from the
Success Sharing Plan should be consistent with the level of achievement of the
Company's key performance measures.
At the beginning of each year, the success sharing participation rate for
each executive is established, giving consideration to the factors mentioned
earlier. Each participant in the Success Sharing Plan receives a bonus
determined by multiplying their eligible compensation (primarily salary) by
their participation rate. The product of these two numbers is then multiplied
by the annual success sharing factor, which is derived from the grid described
above.
Bonuses under the Success Sharing Plan are determined from a grid approved
by the Committee, which may be modified from time to time. The horizontal and
vertical axes of the grid consist of defined levels of revenue growth over the
previous year and pre-tax profit as a percentage of revenue (determined after
deducting the cost of the bonuses). The intersection of these two key
performance measures determines the annual success sharing factor, which is
used along with the individual's success sharing participation rate (described
below) to calculate the individual's bonus.
Given the Company's performance in 1997, including revenue growth and pre-
tax profit, a success sharing bonus was not paid to any executive officers or
the other key contributors participating in the Success Sharing Plan, other
than that required under an employment agreement with Mr. Hudson. See
"Employment Agreements" for further information.
Other individual annual incentive programs may be provided to executive
officers, and generally relate to revenue achievement, meeting product general
availability dates, or individual goal achievement. For example, the Vice
President of Worldwide Distribution and the Vice President of Engineering have
annual incentive programs based upon the achievement of revenue for the
respective areas/products within their individual responsibility. For 1997,
bonuses were paid to certain executive officers based upon the results of
their individual incentive programs.
LONG TERM INCENTIVES: This includes stock options and deferred compensation.
Stock options are a key tool to recruit, retain, and motivate executive
officers and certain other employees. Stock options have been granted at the
Common Stock's fair market value on the date of grant. The timing and amount
of stock options have been determined, at the discretion of the Compensation
Committee, based on the anticipated contribution of the particular employee
and the level of responsibility of their position in the Company, as well as
taking into account the number of options then held by such employee. The
criteria used to determine stock option grants to the President and Chief
Executive Officer are the same criteria applied to other executives. During
1997, the Compensation Committee approved the implementation of an Executive
Deferred Compensation Plan. This plan provides eligible executives the
opportunity to defer compensation and receive a matching contribution equal to
20% of deferrals, up to a maximum of $10,000 per year, from the Company. The
matching contribution has an associated vesting schedule whereby the executive
would be fully vested after four years of service.
BENEFITS: The Company generally provides the same level of benefits to
executives that are available to other employees.
COMPENSATION FOR THE PRESIDENT AND CHIEF EXECUTIVE OFFICER
The 1997 compensation for Thomas G. Hudson, President and Chief Executive
Officer, included an annual base salary of $285,000, participation in the
Success Sharing Plan at a participation rate of 60%, with a $12,500 guaranteed
minimum payment per calendar month until June 30, 1998, according to his
employment agreement. Mr. Hudson received two stock option grants during 1997.
The option grants made to Mr. Hudson were based upon his performance and
leadership with the Company. The grants placed a significant portion of his
total compensation at risk, since the options' value depends on the
appreciation of the Company's Common Stock over the option terms.
6
<PAGE>
INTERNAL REVENUE CODE SECTION 162(M)
Internal Revenue Code Section 162(m) limits the deductibility of
compensation over $1 million paid by a company to an executive officer. The
Committee has not taken action to exempt annual incentives with respect to
Section 162(m) because it does not anticipate that the annual cash
compensation provided to any of the Company's executive officers will exceed
$1,000,000 during the upcoming year. The Committee believes that amounts
realized from the exercise of stock options granted under the Stock Award Plan
would not be included in calculations under Section 162(m).
ERWIN A. KELEN
LAWRENCE PERLMAN
JOHN ROLLWAGEN
Members of the Compensation
Committee
7
<PAGE>
SUMMARY COMPENSATION TABLE
The following table shows, for the Company's Chief Executive Officer, each
of the four other most highly compensated executive officers of the Company at
the end of fiscal 1997, and one additional executive officer who served in
that capacity during a portion of 1997 (collectively, the "Named Officers"),
information concerning compensation earned for services in all capacities
during the fiscal year ended December 31, 1997, as well as compensation earned
by each such person for the two previous fiscal years (if the person was the
Chief Executive Officer or another executive officer during any part of such
fiscal year):
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------- SHARES
SALARY BONUS UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($) OPTIONS (#) COMPENSATION ($)
- --------------------------- ---- -------- -------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Thomas G. Hudson(1) 1997 $285,000 $150,000 200,000 $135,411
President and Chief 1996 $125,962 $ 75,000 500,000 $118,961
Executive Officer
William C. Collette(2) 1997 $137,885 $ 52,020 40,000 $ 2,395
Vice President of 1996 $121,731 $ 34,460 50,000 --
Engineering
Peter Dixon(3) 1997 $127,500 $ 47,976 14,500 $ 1,600
Vice President of 1996 $134,000 $ 70,611 22,500 --
Worldwide Distribution 1995 $132,000 $ 55,587 18,750 --
Mark R. Knittel(4) 1997 $124,923 $ 49,000 90,000 $ 29,056
Vice President of
Marketing and
Business Development
Scott A. McCourt(5) 1997 $129,260 -- 15,000 $ 1,000
Vice President of Brixton 1996 $120,000 $ 20,220 20,000 --
Development 1995 $ 18,231 -- 40,000 --
Julie C. Quintal(6) 1997 $119,648 -- 20,000 $ 1,000
Vice President of Customer 1996 $115,000 $ 30,178 22,500 --
Support 1995 $102,458 -- 15,000
</TABLE>
- --------
(1) Mr. Hudson's "Bonus" consists of guaranteed minimum success sharing
payments according to his employment agreement (see section entitled
"Employment Agreements" for further information). "All Other Compensation"
in 1997 consists of a $1,000 401(k) match paid by the Company, a $10,000
Executive Deferred Compensation match and $124,411 for reimbursements of
relocation expenses.
(2) Mr. Collette's "Bonus" consists of an individual performance bonus. "All
Other Compensation" consists of a $1,000 401(k) match paid by the Company
and a $1,395 Executive Deferred Compensation match.
(3) Mr. Dixon's "Bonus" consists of sales commissions and an individual
performance bonus. "All Other Compensation" consists of a $1,000 401(k)
match paid by the Company and a $600 Executive Deferred Compensation
match.
(4) Mr. Knittel's "Bonus" consists of $24,000 in guaranteed minimum bonus
payments and a $25,000 hiring bonus (see section entitled "Employment
Agreements" for further information). "All Other Compensation" consists of
a $1,846 Executive Deferred Compensation match and the remainder is
associated with reimbursements for relocation expenses. Mr. Knittel became
an executive officer of the Company in March 1997.
(5) Mr. McCourt's "All Other Compensation" consists of a $1,000 401(k) match
paid by the Company. In connection with the Company's 1997 acquisition of
the Internet Solutions Division of Apertus Technologies Inc., Mr. McCourt
ceased being an executive officer of the Company.
(6) Ms. Quintal's "All Other Compensation" consists of a $1,000 401(k) match
paid by the Company.
8
<PAGE>
OPTION TABLES
The following tables summarize stock option grants and exercises during 1997
to or by the Named Officers and certain other information relative to such
options.
OPTION GRANTS IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------
POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENT OF AT ASSUMED ANNUAL RATES OF
SHARES TOTAL OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(/3/)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION -----------------------------
NAME GRANTED(/1/) FISCAL YEAR PRICE(/2/) DATE 5% 10%
- ---- ------------ ------------- ---------- ----------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Thomas G. Hudson 125,000 6.7% $5.5625 March 2, 2007 $438,047 $ 1,105,547
75,000 4.0% $3.6250 December 16, 2007 $171,281 $ 432,281
William C. Collette 25,000 1.3% $5.5625 March 2, 2007 $ 87,609 $ 221,109
15,000 0.8% $3.6250 December 16, 2007 $ 34,256 $ 86,456
Peter Dixon 7,500 0.4% $5.5625 March 2, 2007 $ 26,283 $ 66,333
7,000 0.4% $3.6250 December 16, 2007 $ 15,986 $ 40,346
Mark R. Knittel 70,000 3.7% $5.7500 March 19, 2007 $253,575 $ 639,975
20,000 1.1% $3.6250 December 16, 2007 $ 45,675 $ 115,275
Scott A. McCourt 7,500 0.4% $5.5625 March 2, 2007 $ 26,283 $ 66,333
7,500 0.4% $3.6250 December 16, 2007 $ 17,128 $ 43,228
Julie C. Quintal 12,500 0.7% $5.5625 March 2, 2007 $ 43,805 $ 110,555
7,500 0.4% $3.6250 December 16, 2007 $ 17,128 $ 43,228
</TABLE>
- --------
(1) Subject to acceleration at the discretion of the Compensation Committee or
upon the death or disability of the optionee, each option generally
becomes cumulatively exercisable with respect to 25% of the shares covered
on each of the first four anniversaries of the grant date.
(2) Fair market value per share on the date of grant as determined in
accordance with the Stock Award Plan.
(3) The 5% and 10% assumed rates of appreciation are mandated by the rules of
the Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future Common Stock price.
STOCK OPTION EXCHANGE PROGRAM FOR NON-EXECUTIVE OFFICERS
In May 1997, the Compensation Committee considered the options held by the
Company's employees and the fact that a broad decline in the price of the
Company's stock price had resulted in a substantial number of stock options
with exercise prices well above the recent historical trading prices of the
stock. The Committee believed it was critical to the Company's future success
to be able to retain its highly skilled employees and to provide these
employees with the opportunity and incentive to participate in the Company's
future success through appropriately priced stock options.
Accordingly, the Compensation Committee approved a Stock Option Exchange
opportunity for all employees of the Company, excluding executive officers, to
exchange outstanding options for new options totaling 75% of the exchanged
options. The exchanged options vest over two years. The Stock Options Exchange
opportunity was completed in June 1997 with a total of 413,958 stock options
exchanged for 310,469 new options at prices ranging from $4.8125 to $5.1875.
9
<PAGE>
AGGREGATED OPTION EXERCISES IN 1997 AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END (#) AT FISCAL YEAR-END(/1/)
------------------------------ -------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE (#) REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------ -------- ------------------------------ -------------------------
<S> <C> <C> <C> <C>
Thomas G. Hudson -- -- 249,994 /450,006 -- / --
William C. Collette -- -- 45,500 / 91,500 -- / --
Peter Dixon -- -- 53,438 / 43,562 -- / --
Mark R. Knittel -- -- -- / 90,000 -- / --
Scott A. McCourt -- -- 25,000 / 50,000 -- / --
Julie C. Quintal -- -- 54,686 / 46,564 -- / --
</TABLE>
- --------
(1) Market value of underlying securities at year-end was $3.50 per share. All
the Named Officers' options have an exercise price above $3.50 per share.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Thomas G. Hudson as of
June 9, 1996, whereby he serves as President and Chief Executive Officer of
the Company. Effective January 1, 1997, the Board approved an increase to Mr.
Hudson's annualized base salary to $285,000. Effective January 1, 1998, the
Board approved an increase to Mr. Hudson's annualized base salary to $300,000.
The employment agreement also provides for a hiring bonus, which was paid in
1996, in the amount of $100,000; participation in the Company's Success
Sharing Annual Leadership Bonus Program at a participation rate of 60%, with a
$12,500 non-recoverable minimum payment per calendar month for the period of
July 1, 1996 through June 30, 1998; and a long-term incentive opportunity in
the form of a non-qualified stock option to purchase 500,000 shares of CNT's
Common Stock. In the event of a "Change of Control," the number of unvested
Options equal to the number of then vested options shall become immediately
vested and exercisable, provided in no event shall less than an aggregate of
250,000 options be vested and exercisable upon a Change of Control. If Mr.
Hudson's employment ends by reason of termination without cause, then the
Company shall continue to pay Mr. Hudson's base salary and reimburse him for
expenses incurred to retain ongoing COBRA benefits, at the rate then in
effect, for a period of one year following the date of termination, provided
that if termination occurs upon or within six months after a Change of
Control, he shall receive a lump sum payment equal to one year's base salary.
In addition, the Company agreed to reimburse Mr. Hudson for certain relocation
expenses.
The Company entered into an employment arrangement with Mark R. Knittel,
Vice President of Marketing and Business Development with base compensation at
an annualized rate of $160,000. Mr. Knittel's incentive compensation was
targeted at 30% of base salary. For 1997, the Company guaranteed $24,000 of
the total target bonus on a prorated monthly basis for the first year. The
Company provided a signing bonus of $25,000 and 70,000 stock options. The
Company agreed to provide six months severance should the employment
relationship be terminated for non-performance. In addition, the Company
agreed to reimburse Mr. Knittel for certain relocation expenses.
10
<PAGE>
COMPARATIVE STOCK PRICE PERFORMANCE
The graph below compares the cumulative total shareholder return on the
Common Stock of the Company ("CNT Common Stock") for the last five fiscal years
with the cumulative total return on The Nasdaq Stock Market (U.S. Companies)
Index ("The Nasdaq Total Return Index") and the Computer Manufacturers Nasdaq
Industry Category Index ("The Nasdaq Computer Manufacturers Index") for the
same periods as compiled by the Center for Research in Security Prices of the
University of Chicago Graduate School of Business (assuming the investment of
$100 in CNT Common Stock, The Nasdaq Total Return Index, and The Nasdaq
Computer Manufacturers Index on December 31, 1992, and reinvestment of all
dividends). The Nasdaq Computer Manufacturers Index is comprised of all
companies listed on The Nasdaq Stock Market with SIC Code No. 357. The Company
will promptly make available a list of the companies comprising the Nasdaq
Computer Manufacturers Index on the request of a shareholder in writing to the
Secretary of the Company at the address set forth on the first page of this
Proxy Statement.
[GRAPH]
--------------------------------------------------------
<TABLE>
<CAPTION>
12/31/92 12/31/93 12/30/94 12/29/95 12/31/96 12/31/97
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CNT Common Stock 100.0 195.5 123.9 81.8 90.9 63.6
- --------------------------------------------------------------------------
The Nasdaq Total 100.0 114.8 112.2 158.7 195.2 239.6
Return Index
- --------------------------------------------------------------------------
The Nasdaq Computer 100.0 94.8 104.1 163.9 220.1 266.5
Manufacturers Index
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE>
PROPOSAL TO AMEND AND RESTATE THE 1992 STOCK AWARD PLAN
(ITEM 2 ON PROXY CARD)
APPROVAL OF AMENDMENT AND RESTATEMENT OF STOCK AWARD PLAN
The Stock Award Plan was adopted by the Board and approved by the
shareholders in 1992. The Board has adopted, subject to shareholder approval,
an amendment and restatement of the Stock Award Plan. As amended and restated,
the Stock Award Plan would, among other things: (a) increase the number of
shares authorized for issuance by 800,000 shares, (b) increase the maximum
number of shares available under the plan if any Awards are granted in
connection with the acquisition of another business, (c) expand the type of
Awards that can be granted under the plan to include restricted stock, stock
and any other stock-based award, with specified plan limits, (d) offer limited
transferability of Awards, (e) modify the granting of Outside Director Awards,
and (f) expand the ongoing ability of the Committee or Board to amend or
modify the plan.
The Board of Directors believes that stock-based compensation has been and
will continue to be an important compensation element in attracting, retaining
and motivating key employees. As of December 31, 1997, 337,990 net shares have
been issued under the Stock Award Plan, 4,291,462 are subject to outstanding
options and 770,548 shares are available for future grants of stock options
and other Awards under the Stock Award Plan. The Board of Directors believes
that the amendment and restatement of the Stock Award Plan is advisable to
enable the Company to design and offer stock-based Awards to attract, retain
and motivate key employees and other Company representatives, including
Outside Directors, and to use such Awards in relation to a planned increase in
the number of employees of the Company. The shareholders are being asked to
approve the amended and restated Stock Award Plan at the Annual Meeting.
PURPOSE
The purpose of the Stock Award Plan is to assist the Company in recruiting
and retaining key employees and other Company representatives, including
Outside Directors, and to motivate them to produce a superior return to the
Company's shareholders by offering an opportunity to realize stock
appreciation, facilitating stock ownership, and rewarding a high level of
corporate financial performance.
ADMINISTRATION
The Stock Award Plan is administered by the Compensation Committee (the
"Committee"), a committee of the Board composed of two or more directors who
are non-employee directors, as that term is defined in Rule 16b-3(b)
promulgated under the Securities Exchange Act of 1934, as amended. The
Committee has the exclusive power to adopt and revise rules relating to the
Stock Award Plan and to determine the timing of grants, identity of
recipients, the form and amount of each Award and other terms and conditions
of Awards; provided, however, that under the Stock Award Plan, as amended, the
Board will have the sole power to grant Awards to Outside Directors. The
Committee may delegate its responsibilities under the Stock Award Plan to
members of the Company's management and others with respect to the selection
and grant of Awards to employees of the Company who are not deemed to be
officers, directors, or 10% shareholders of the Company under applicable
federal securities laws.
Under the Stock Award Plan, as amended, the Committee may require or permit
employees to elect to defer the issuance of Shares or the settlement of Awards
in cash under such rules and procedures as it may establish under the Plan. It
may also provide that deferred settlements include the payment or crediting of
interest on the deferral amounts.
ELIGIBILITY AND NUMBER OF SHARES
Officers, other employees, directors, consultants, and independent
contractors of the Company and its affiliates are eligible to receive Awards
under the Stock Award Plan. The Company currently has approximately 600
employees who may receive Awards under the Stock Award Plan.
12
<PAGE>
The number of shares of the Company's Common Stock currently available for
issuance under the Stock Award Plan is 5,400,000 (subject to adjustment for
stock splits, stock dividends, and similar changes in the Company's
capitalization). If the amendment is approved, an additional 800,000 shares of
Common Stock will be available for issuance under the Stock Award Plan
(subject to adjustment for stock splits, stock dividends, and similar changes
in the Company's capitalization, and as set forth in the next two paragraphs).
The maximum number of shares that may be awarded by stock options intended to
comply with Section 422 of the Internal Revenue Code ("incentive stock
options") is 6,200,000. The maximum number of shares that may be awarded as
restricted stock and stock awards is 500,000, in the aggregate. In addition,
no employee in the Stock Award Plan may receive options to purchase more than
750,000 shares of Common Stock in any one calendar year. Grants of options to
individual employees in any calendar year under the Stock Award Plan have
historically been below this 750,000 share limit. The last reported per share
sale price of the Company's Common Stock on the Nasdaq National Market on
March 23, 1998, was $4.5625.
The Stock Award Plan, as amended, provides that the Committee may grant
Awards under the Stock Award Plan to employees and other representatives of
entities acquired by the Company in substitution of stock-based awards
previously granted to them by the acquired entity; such Awards may have terms
and conditions that vary from those specified in the Stock Award Plan. In
addition, as amended, the Stock Award Plan provides that the maximum number of
shares available for distribution under the Stock Award Plan will be
automatically increased to take into account any Awards granted in
substitution for stock-based awards previously granted by the acquired entity.
The Stock Award Plan provides that all Awards are subject to agreements
containing the terms and conditions of the Awards. These agreements are
entered into by the recipients of the Awards and the Company when the Awards
are granted. Agreements with employees are subject to amendment, including
unilateral amendment by the Company (upon authorization of the Committee),
unless such amendments are determined by the Committee to be materially
adverse to the recipient and are not required as a matter of law. Any shares
of Common Stock subject to Awards under the Stock Award Plan that are not used
because the terms and conditions of the Awards are not met may be reallocated
under the Stock Award Plan as though they had not previously been Awarded. In
addition, as amended, the Stock Award Plan provides that if a recipient uses
shares of Common Stock to pay the purchase or exercise price of an Award or to
satisfy tax withholding obligations related to an Award, only the net number
of shares shall be deemed to be issued for purposes of determining the maximum
number of shares available under the Stock Award Plan.
TYPES OF AWARDS
The types of Awards that currently may be granted under the Stock Award Plan
include incentive and non-qualified stock options and performance units; as
amended, the Stock Award Plan additionally would permit the grant of
restricted stock, stock and other stock-based Awards. Subject to the
restrictions described in this Proxy Statement with respect to incentive stock
options and non-employee director options, these Awards are exercisable by the
recipients at such times as are determined by the Committee. No Award is
assignable or transferable by a recipient. However, under the Stock Award
Plan, as amended, the Committee, in its discretion, may permit transfers of
Awards in the event of death or when the Award (other than Incentive Stock
Options) is transferred to members of the recipient's immediate family or to
one or more trusts for the benefit of such family members or partnerships in
which such family members are the only partners, if the recipient receives no
consideration for the transfer.
Incentive and Non-qualified Stock Options. Both incentive stock options and
non-qualified stock options may be granted to recipients at such exercise
prices as the Committee may determine, but not less than 100% of their fair
market value (as defined in the Stock Award Plan) as of the date the option is
granted. Stock options may be granted and exercised at such times as the
Committee may determine, except that unless applicable federal tax laws are
modified: (i) no incentive stock options may be granted more than ten years
after the effective date of the Stock Award Plan; (ii) an incentive stock
option shall not be exercisable more than ten years after the date of grant;
and (iii) the aggregate fair market value of the shares of the Company's
Common Stock with respect to which incentive stock options held by an employee
under the Stock Award Plan or any other plan of the Company or any affiliate
may first become exercisable in any calendar year may not exceed $100,000.
13
<PAGE>
Incentive stock options may only be granted to employees of the Company and
its subsidiaries. The purchase price for stock purchased upon the exercise of
the options may be payable in cash, in stock having a fair market value on the
date the option is exercised equal to the option price of the stock being
purchased, or in a combination of cash and stock, as determined by the
Committee. The Committee may permit employees to exercise options and
simultaneously sell the stock purchased upon such exercise and use the sale
proceeds to pay the purchase price and/or any required withholding taxes.
Under the Stock Award Plan, as amended, the Committee may provide, at or after
the grant of a stock option, that a recipient who surrenders shares of stock
in payment of an option shall be granted a new incentive or non-qualified
stock option covering a number of shares equal to the number of shares
tendered.
Performance Units. Performance units entitle the recipient to payment in
amounts determined by the Committee based upon the achievement of specified
performance targets during a specified term. Payments with respect to
performance units may be paid in cash, shares of Common Stock, or a
combination of cash and Common Stock, as determined by the Committee. The
maximum payment that can be made for awards granted to any one individual
shall be $1,000,000 for any single or combined performance goals established
for a specified performance period.
Restricted Stock, Stock and Other Stock-Based Awards. The Committee is
authorized to grant, either alone or in conjunction with other Awards, stock
and stock-based Awards. The Committee shall determine the persons to whom such
Awards are made, the timing and amount of such Awards, and all other terms and
conditions. Company Common Stock granted to recipients may be unrestricted or
may contain such restrictions, including provisions requiring forfeiture and
imposing restrictions upon stock transfer, as the Committee may determine.
Unless forfeited, the recipient of restricted Common Stock will have all other
rights of a shareholder, including without limitation, voting and dividend
rights.
Outside Director Awards. Under the Stock Award Plan, as amended, Outside
Directors may, in the discretion of the Board and in accordance with the terms
of the Stock Award Plan, be granted Awards under the Stock Award Plan at
various times, including when an Outside Director is first elected or
appointed to the Board, when an outside director is re-elected to the Board or
at other times as may be deemed appropriate. Prior to the amendment, Outside
Directors received automatic grants of non-qualified stock options as follows:
a) 50,000 shares upon initial election or appointment; b) 20,000 shares
annually at the time of each annual shareholder's meeting; and c) additional
shares if appointed to the Executive Committee of the Board and if elected to
serve as Chairman or Vice Chairman of the Board. If the amended Stock Award
Plan is approved, there will be no automatic grants made to Outside Directors
under the Stock Award Plan, however, the Board may make discretionary grants
at or after the Annual Meeting.
ACCELERATION OF AWARDS, LAPSE OF RESTRICTIONS, FORFEITURE
The Committee may provide for the lapse of restrictions on restricted stock
or other Awards, accelerated exercisability of options or acceleration of the
term with respect to which the achievement of performance targets for
performance units is determined in the event of a change in control of the
Company, other fundamental changes in the corporate structure of the Company,
the death or retirement of the recipient, or such other events as the
Committee may determine. The Committee may provide that certain Awards may be
exercised in certain events after the termination of employment or death of
the recipient.
ADJUSTMENTS, MODIFICATION, TERMINATION
The Stock Award Plan provides the Committee with discretion to adjust the
kind and number of shares available for Awards or subject to outstanding
Awards, the option price of outstanding options, and performance targets for,
and payments under, outstanding Awards of performance units in the event of
mergers, recapitalization, stock dividends, stock splits, or other relevant
changes. Adjustments in performance targets and payments on performance units
are also permitted upon the occurrence of such other events as may be
specified by the Committee, which may include changes in the Company's
accounting practices or changes in the recipient's title or employment
responsibilities. The Stock Award Plan, as amended, also gives the Board the
right to terminate, suspend, or modify the Stock Award Plan, except that
amendments to the Stock Award Plan are subject to shareholder approval if
needed to comply with the incentive stock option provisions of federal tax
law. Under the Stock Award Plan, the Committee may cancel outstanding options
and performance units
14
<PAGE>
generally in exchange for cash payments to the recipients in the event of
certain dissolutions, liquidations, mergers, statutory share exchanges, or
other similar events involving the Company.
FEDERAL TAX CONSIDERATIONS
Incentive Stock Options. No taxable income to a recipient will be realized,
and the Company will not be entitled to any related deduction, at the time any
incentive stock option is granted under the Stock Award Plan. If certain
statutory employment and holding period conditions are satisfied before the
recipient disposes of shares acquired pursuant to the exercise of such an
option, then no taxable income will result upon the exercise of such option
and the Company will not be entitled to any deduction in connection with such
exercise. Upon disposition of the shares after expiration of the statutory
holding periods, any gain or loss realized by a recipient will be a capital
gain or loss. The Company will not be entitled to a deduction with respect to
a disposition of the shares by a recipient after the expiration of the
statutory holding periods.
Except in the event of death, if shares acquired by a recipient upon the
exercise of an incentive stock option are disposed of by the recipient before
the expiration of the statutory holding periods (a "disqualifying
disposition"), the recipient will be considered to have realized compensation,
taxed as ordinary income in the year of disposition, in an amount, not
exceeding the gain realized on such disposition, equal to the difference
between the exercise price and the fair market value of the shares on the date
of exercise of the option. The Company will be entitled to a deduction at the
same time and in the same amount as the recipient is deemed to have realized
ordinary income. Generally, any gain realized on the disposition in excess of
the amount treated as compensation or any loss realized on the disposition
will constitute capital gain or loss, respectively. If the recipient pays the
option price with shares that were originally acquired pursuant to the
exercise of an incentive stock option and the statutory holding periods for
such shares have not been met, the recipient will be treated as having made a
disqualifying disposition of such shares, and the tax consequences of such
disqualifying disposition will be as described above.
The foregoing discussion applies only for regular tax purposes. For
alternative minimum tax purposes, an incentive stock option will be treated as
if it were a non-qualified stock option, the tax consequences of which are
discussed below.
Non-qualified Stock Options. No taxable income to a recipient will be
realized, and the Company will not be entitled to any related deduction, at
the time any non-qualified stock option is granted under the Stock Award Plan.
Generally, at the time shares are transferred to the recipient pursuant to the
exercise of a non-qualified stock option, the recipient will realize ordinary
income, and the Company will be entitled to a deduction, equal to the excess
fair market value of the stock on the date of exercise over the option price.
Upon disposition of the shares, any additional gain or loss realized by the
recipient will be taxed as a capital gain or loss.
Restricted and Unrestricted Stock. Unless the recipient files an election to
be taxed under Section 83(b) of the Code, (a) the recipient will not realize
income upon the grant of restricted stock, (b) the recipient will realize
ordinary income, and the Company will be entitled to a corresponding deduction
when the restrictions have been removed or expire and (c) the amount of such
ordinary income and deduction will be the fair market value of the restricted
stock on the date the restrictions are removed or expire. If the recipient
files an election to be taxed under Section 83(b) of the Code, the tax
consequences to the recipient and the Company will be determined as of the
date of the grant of the restricted stock rather than as of the date of the
removal or expiration of the restrictions. With respect to Awards of
unrestricted stock, (a) the recipient will realize ordinary income and the
Company will be entitled to a corresponding deduction upon the grant of the
unrestricted stock, and (b) the amount of such ordinary income and deduction
will be the fair market value of such unrestricted stock on the date of the
grant. When the recipient disposes of restricted or unrestricted stock, the
difference between the amount received upon such disposition and the fair
market value of such shares on the date the recipient realizes ordinary income
will be treated as a capital gain or loss.
15
<PAGE>
Performance Units. Generally: (i) the recipient will not realize income upon
the grant of a performance unit Award; (ii) the recipient will realize
ordinary income, and the Company will be entitled to a corresponding
deduction, in the year cash, shares of Common Stock, or a combination of cash
and shares of Common Stock are delivered to the recipient upon payment of the
performance unit Award; and (iii) the amount of such ordinary income and
deduction will be the amount of cash received plus the fair market value of
the shares of Common Stock received on the date they are received. When the
recipient disposes of shares received in payment of a performance unit Award,
the difference between the amount received upon such disposition and the fair
market value of such shares on the date the recipient realizes ordinary income
will be treated as a capital gain or loss.
WITHHOLDING
The Stock Award Plan permits the Company to withhold from cash Awards, and
to require a recipient receiving Common Stock under the Stock Award Plan to
pay the Company, in cash, an amount sufficient to cover any required
withholding taxes. In lieu of cash, the Committee may permit a recipient of a
stock Award to cover withholding obligations through a reduction in the number
of shares delivered to such recipient or the surrender to the Company of
shares previously received by the recipient.
COMPANY TAX DEDUCTIONS
The Internal Revenue Code of 1986, as amended (the "Code"), limits the
allowable deduction for compensation paid to or accrued with respect to the
Chief Executive Officer and each of the four other most highly compensated
employees of a publicly held corporation to no more than $1 million per year.
Certain types of compensation are exempted from this deduction limitation,
including compensation subject to: (i) the attainment of an objective
performance goal or goals; (ii) an outside director requirement; and (iii) a
shareholder approval requirement. The deduction with respect to any stock
option meeting the requirements described above is not subject to the $1
million per employee per year deduction limitations.
The tax deduction of the Company with respect to any other stock option is
determined when the option is exercised by the option holder. To the extent
the option is treated as a non-qualified option, the deductible amount
generally will equal the difference between the fair market value of the
Common Stock of the Company on the date of exercise and the exercise price of
the option, multiplied by the total number of options exercised.
The stock options of the Company granted pursuant to the Stock Award Plan
are awarded at a price not less than the fair market value of the Common Stock
of the Company on the date of the grant. Thus, such options are treated as
"performance-based" compensation under the first requirement of the Code set
forth above. The Board plans to continue to review the composition of the
Compensation Committee to ensure that it will consist entirely of "outside
directors" (as such term is defined by the Code) in order to satisfy the
second requirement of the Code set forth above.
In order to satisfy the final requirement of the Code set forth above, the
Stock Award Plan sets at 750,000 the maximum number of shares subject to
options that can be awarded to any single employee during a specified period.
Grants of options to individual participants in any calendar year under the
Stock Award Plan have historically been significantly below this 750,000 share
limit. The purpose of this 750,000 share limit is to afford the Board and the
Compensation Committee great flexibility in connection with the recruitment
and retention of executives and other high level employees. In satisfying the
requirements of the Code, the Stock Award Plan qualifies the stock options
granted under it so as to preserve the corresponding tax deductions of the
Company if and when such stock options are exercised.
COPY OF AMENDED AND RESTATED STOCK AWARD PLAN
The full text of the amended and restated Stock Award Plan is set forth as
Exhibit A to this Proxy Statement. The summary set forth above is qualified in
its entirety by reference to such Exhibit for a complete statement of the
terms of the amended and restated Stock Award Plan.
16
<PAGE>
BOARD RECOMMENDATION AND VOTING REQUIREMENTS
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT AND RESTATEMENT OF
THE STOCK AWARD PLAN. Provided a quorum is present, the affirmative vote of
holders of a majority of the voting power of the outstanding shares of Common
Stock of the Company entitled to vote on this item and present, in person or
by proxy, at the Annual Meeting is required for approval of the amendment and
restatement of the Stock Award Plan. Proxies solicited by the Board will be
voted for approval of this amendment and restatement, unless shareholders
specify otherwise in their proxies.
PROPOSAL TO AMEND THE 1992 EMPLOYEE STOCK PURCHASE PLAN
(ITEM 3 ON PROXY CARD)
APPROVAL OF AMENDMENT OF EMPLOYEE STOCK PURCHASE PLAN
The 1992 Employee Stock Purchase Plan (the "Stock Purchase Plan") was
adopted by the Board and approved by the shareholders in 1992 and 500,000
shares of Common Stock are reserved for issuance. The Board has adopted,
subject to shareholder approval, an amendment to the Company's Stock Purchase
Plan to increase the number of shares authorized for issuance thereunder by
300,000 shares. As of December 1997, there were no shares of Common Stock
available for future grants under the Stock Purchase Plan.
The increase in the number of authorized shares is necessary to enable the
Company to continue to offer employees the opportunity to purchase shares of
Common Stock under the Stock Purchase Plan and to accommodate the growth in
the number of employees. The shareholders are being asked to approve this
amendment to the Stock Purchase Plan at the Annual Meeting.
PURPOSE
The purpose of the Stock Purchase Plan is to provide eligible employees with
an opportunity to acquire a proprietary interest in the Company through the
purchase of Common Stock of the Company and, thereby, to develop a stronger
incentive to work for the continued success of the Company. The Stock Purchase
Plan is an employee stock purchase plan under Section 423 of the Internal
Revenue Code of 1986, as amended.
ADMINISTRATION
The Stock Purchase Plan is administered by the Compensation Committee, a
committee of the Board. Subject to the provisions of the Stock Purchase Plan,
the Committee is authorized to determine any questions arising in the
administration, interpretation, and application of the Stock Purchase Plan,
and to make such rules as are necessary to carry out its provisions.
ELIGIBILITY AND NUMBER OF SHARES
Up to 500,000 shares of Common Stock are reserved for issuance under the
Stock Purchase Plan (subject to appropriate adjustments by the Committee in
the event of certain changes in the outstanding shares of Common Stock by
reason of a stock dividend, stock split, corporate separation,
recapitalization, merger, consolidation, combination, exchange of shares and
the like). If the amendment to the Stock Purchase Plan is approved by the
shareholders, an additional 300,000 shares of Common Stock will be reserved
for issuance under the Stock Purchase Plan (subject to adjustments as
described above). Shares delivered pursuant to the Stock Purchase Plan shall
be newly issued Common Stock of the Company.
Currently, any employee of the Company or one of its affiliates is eligible
to participate in the Stock Purchase Plan for any "Purchase Period" so long
as, on the first day of such Purchase Period, the employee's customary
employment is: (i) at least 20 hours per week; and (ii) for more than five
months in any calendar year. Purchase Period is defined as either the 6-month
period beginning on December 1 of each year and ending on May 31 of the year,
or the 6-month period beginning on June 1 of each year and ending on November
30 of the year.
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Any eligible employee may elect to become a participant in the Stock
Purchase Plan by filing an enrollment form in advance of the Purchase Period
in which the employee wishes to participate. The enrollment form authorizes
payroll deductions beginning with the first payday in the Purchase Period and
continuing until the employee withdraws from the Purchase Plan or ceases to be
eligible to participate.
No employee may be granted the right to purchase Common Stock under, or
otherwise participate in, the Stock Purchase Plan if after the purchase such
employee would own (or have the right to purchase) stock of the Company
possessing 5% or more of the total combined voting power or value of all
classes of stock of the Company.
For the December 1, 1997 through May 31, 1998 Purchase Period, 218 employees
were participating in the Stock Purchase Plan as of March 23, 1998.
PARTICIPATION
An eligible employee who elects to participate in the Stock Purchase Plan
authorizes the Company to make payroll deductions of between 1% and 10% of the
employee's "Base Compensation" (meaning gross cash compensation paid in
accordance with the terms of employment, subject to certain exclusions set
forth in the Stock Purchase Plan) and "Incentive Compensation" (meaning
compensation paid pursuant to the Company's Success Sharing Bonus Plan or in
the form of commissions). The participant may elect different withholding
percentages for Base Compensation and Incentive Compensation, provided in each
case that the withholding percentage must always be a whole percentage from 0%
to 10%.
A participant may, at any time during the Purchase Period, elect to reduce
(but not increase) the amount of deductions or to make no further deductions,
as set forth in greater detail in the Stock Purchase Plan. A participant may
also elect to withdraw from the Stock Purchase Plan at any time before the end
of a Purchase Period. In the event of a withdrawal, all future payroll
deductions will cease and the amounts withheld will be paid to the participant
in cash within 60 days. Any participant who stops payroll deductions may not
thereafter resume payroll deductions for that Purchase Period, and any
participant who decreases payroll deductions may not thereafter further
decrease or increase such deductions, except that he or she may stop further
deductions.
Amounts withheld under the Stock Purchase Plan are held by the Company as
part of its general assets until the end of the Purchase Period and then
applied to purchase Common Stock of the Company as described below. No
interest is credited to a participant for amounts withheld.
PURCHASE OF STOCK
Amounts withheld for a participant in the Stock Purchase Plan are used to
purchase Common Stock of the Company as of the last business day of the
Purchase Period at a price equal to 85% of the lesser of the Market Price (as
defined in the Stock Purchase Plan) of a share of Common Stock on either the
first or last business day of the Purchase Period. All amounts so withheld are
used to purchase the largest number of whole shares of Common Stock
purchasable with such amount, unless the participant has properly notified the
Committee in advance that he or she elects to purchase a lesser number of
whole shares or to receive the entire amount in cash. If the purchases by all
participants would exceed the number of shares of Common Stock available for
purchase under the Stock Purchase Plan, each participant will be allocated a
ratable portion of such available shares. Any amount not used to purchase
shares of Common Stock will be paid to the participant in cash within 60 days
after the end of the Purchase Period. No more than $2,500 may be withheld by
any Participant to purchase shares of Common Stock under the Stock Purchase
Plan during any Purchase Period.
As soon as practicable after the close of the Purchase Period, the Company
shall issue and deliver to participants certificates representing the
respective shares of Common Stock purchased under the Stock Purchase Plan.
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No more than 2,500 shares of Common Stock and other stock may be purchased
under the Stock Purchase Plan and all other employee stock purchase plans (if
any) of the Company and any parent or subsidiary corporations of the Company
by any participant for each Purchase Period.
DEATH, DISABILITY, RETIREMENT, OR OTHER TERMINATION OF EMPLOYMENT
If the participant's employment terminates because the employee has died,
becomes permanently disabled, or has retired at or after age 65 (or earlier
with the consent of the Committee), the participant (or his or her legal
representative) may either: (i) withdraw from the Stock Purchase Plan, in
which case all amounts withheld and not previously used to purchase Common
Stock pursuant to the Stock Purchase Plan will be refunded in cash; or (ii)
elect to receive a refund of only a portion of such amounts and to apply the
balance toward the acquisition of Common Stock at the end of the Purchase
Period. Any such election must be made within three months of the event
causing termination of employment, but not (except in the case of death) later
than the conclusion of the Purchase Period. If no notice of election is filed
with the Committee within the prescribed period, the participant will be
deemed to have elected to withdraw from the Stock Purchase Plan.
If a participant's employment terminates for any other reason, the Company
will refund in cash all amounts withheld and not previously used to purchase
Common Stock under the Stock Purchase Plan.
RIGHTS NOT TRANSFERABLE
The rights of a participant in the Stock Purchase Plan are exercisable only
by the participant during his or her lifetime. No right or interest of any
participant in the Stock Purchase Plan may be sold, pledged, assigned, or
transferred in any manner other than by will or the laws of descent and
distribution.
AMENDMENT OR MODIFICATION
The Board may at any time amend or modify the Stock Purchase Plan, provided
that approval by the shareholders of the Company is required to: (i) increase
the number of shares of Common Stock to be reserved under the Stock Purchase
Plan (except for adjustments by reason of stock dividends, stock splits,
corporate separations, recapitalizations, mergers, consolidations
combinations, exchanges of shares and the like); (ii) decrease the minimum
purchase price (except for adjustments by reason of stock dividends, stock
splits, corporate separations, recapitalizations, mergers, consolidations
combinations, exchanges of shares and the like); (iii) withdraw the
administration of the Stock Purchase Plan from the Committee; or (iv) change
the definition of employees eligible to participate in the Stock Purchase
Plan.
TERMINATION
All rights of participants in any offering under the Stock Purchase Plan
will terminate at the earlier of: (i) the conclusion of the Purchase Period
ending May 31, 2002; (ii) the day participants become entitled to purchase a
number of shares of Common Stock equal to or greater than the number of shares
remaining available for purchase; or (iii) at any time, at the discretion of
the Board, after 30 days' notice has been given to all participants.
Upon termination, shares of Common Stock available under the Stock Purchase
Plan will be issued to participants and cash, if any, previously withheld and
not used to purchase Common Stock will be refunded to the participants, as if
the Stock Purchase Plan were terminated at the end of a Purchase Period.
FEDERAL TAX CONSIDERATIONS
No income will be recognized by participants due to their purchase of shares
under the Stock Purchase Plan until the disposal of those shares or the death
of the participant. Participants who hold their shares for more than one year
or die while holding their shares will have ordinary income in the year of
disposition or death equal to
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the lesser of: (i) the excess of the fair market value of the shares on the
date of disposition or death over the purchase price paid by the participant;
or (ii) the excess of the fair market value of the shares on the first day of
the year in which they were purchased by the participant over the purchase
price paid by the participant. If the holding period has been satisfied when
the participant sells the shares or the participant dies while holding the
shares, the Company will not be entitled to any deduction in connection with
the shares.
Participants who dispose of their shares within the one-year period after
the shares are transferred to them will be considered to have realized
ordinary income in the year of disposition in an amount equal to the
difference between the fair market value of the shares on the date they were
purchased by the participant and the price paid by the participant. If such
dispositions occur, the Company generally will be entitled to a deduction at
the same time and in the same amount as the participants who make those
dispositions are deemed to have realized ordinary income.
Participants will have a basis in their shares equal to the purchase price
of their shares plus any amount that must be treated as ordinary income at the
time of their disposition of the shares. Any gain realized on the disposition
of shares acquired under the Stock Purchase Plan in excess of the basis will
be capital gain.
BOARD RECOMMENDATION AND VOTING REQUIREMENTS
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO THE STOCK
PURCHASE PLAN. Provided a quorum is present, the affirmative vote of holders
of a majority of the voting power of the outstanding shares of Common Stock of
the Company entitled to vote on this item and present, in person or by proxy,
at the Annual Meeting is required for approval of the amendment to increase
the number of shares of Common Stock reserved for issuance under the Stock
Purchase Plan by 300,000. Proxies solicited by the Board will be voted for
approval of the amendment, unless shareholders specify otherwise in their
proxies.
PROPOSAL TO RATIFY THE APPOINTMENT OF
INDEPENDENT AUDITORS
(ITEM 4 ON PROXY CARD)
KPMG Peat Marwick LLP has audited the financial statements of the Company
since 1984 and has no other relationship with or interest in the Company. The
Board, based on the recommendation of the Audit Committee, has again appointed
KPMG Peat Marwick LLP to serve as the Company's independent auditors for the
fiscal year ending December 31, 1998, subject to ratification by the
shareholders. If the shareholders do not ratify the appointment of KPMG Peat
Marwick LLP, another firm of independent auditors will be selected by the
Board. Proxies solicited by the Board will be voted to ratify the appointment
of KPMG Peat Marwick LLP, unless shareholders specify otherwise in their
proxies. Representatives of KPMG Peat Marwick LLP will be present at the
meeting, will have an opportunity to make a statement if they so desire, and
will be available to respond to questions.
SHAREHOLDER PROPOSALS AND OTHER MATTERS
Any shareholder proposals for the Company's 1999 annual meeting must be
received by the Company by December 6, 1998 in order to be included in the
proxy statement for that meeting. The proposals also must comply with all
applicable statutes and regulations.
At the time this Proxy Statement was mailed, the Board was not aware of any
matters to be presented for action at the Annual Meeting other than those
discussed in this Proxy Statement. If other matters properly come before the
meeting, the proxy holders have discretionary authority--unless it is
expressly revoked--to vote all proxies in accordance with their discretion.
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SHAREHOLDERS WHO WISH TO OBTAIN A COPY OF THE COMPANY'S ANNUAL REPORT ON
FORM 10-K, FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1997, MAY DO SO WITHOUT CHARGE UPON WRITTEN REQUEST
TO: INVESTOR RELATIONS, COMPUTER NETWORK TECHNOLOGY CORPORATION, 605 NORTH
HIGHWAY 169, MINNEAPOLIS, MINNESOTA 55441.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Gregory T. Barnum
Gregory T. Barnum
Secretary
Minneapolis, Minnesota
April 6, 1998
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EXHIBIT A
1992 STOCK AWARD PLAN
(AS AMENDED AND RESTATED)
1. Purpose. The purpose of this 1992 Stock Award Plan (the "Plan") is to
motivate key personnel, including non-employee directors, to produce a
superior return to the shareholders of Computer Network Technology Corporation
by offering such personnel an opportunity to realize Stock appreciation, by
facilitating Stock ownership, and by rewarding them for achieving a high level
of corporate performance. This Plan is also intended to facilitate recruiting
and retaining key personnel of outstanding ability by providing an attractive
capital accumulation opportunity.
2. Definitions.
2.1 The terms defined in this section are used (and capitalized) elsewhere
in this Plan.
(a) "Affiliate" means any corporation that is a "parent corporation" or
"subsidiary corporation" of the Company, as those terms are defined in Section
424(e) and (f) of the Code, or any successor provision.
(b) "Agreement" means a written contract entered into between the Company or
an Affiliate and a Participant containing the terms and conditions of an Award
in such form (not inconsistent with this Plan) as the Committee approves from
time to time, together with all amendments thereto, which amendments may be
unilaterally made by the Company (with the approval of the Committee) unless
such amendments are deemed by the Committee to be materially adverse to the
Participant and are not required as a matter of law.
(c) "Award" means a grant made under this Plan in the form of Options,
Restricted Stock, Stock, Performance Units or any other Stock-based Award.
(d) "Board" means the Board of Directors of the Company.
(e) "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
(f) "Committee" means two or more Disinterested Persons designated by the
Board to administer this Plan under Section 3 hereof.
(g) "Company" means Computer Network Technology Corporation, a Minnesota
corporation, or any successor to substantially all of its businesses.
(h) "Disinterested Person" means a member of the Board who is considered a
disinterested person within the meaning of Exchange Act Rule l6b-3 or any
successor definition.
(i) "Effective Date" means the date specified in Section 10.1 hereof.
(j) "Employee" means any employee (including an officer or director who is
also an employee) of the Company or an Affiliate. "Employee" shall also
include other individuals and entities who are not "employees" of the Company
or an Affiliate but who provide services to the Company or an Affiliate in the
capacity of an advisor, director or consultant. In addition, references herein
to "employment" and similar terms shall include the providing of services in
any such capacity.
(k) "Event" means any of the following:
(i) The acquisition by an individual, entity, or group (within the
meaning of Section 13(d)(3) or l4(d)(2) of the Exchange Act) of beneficial
ownership (within the meaning of Exchange Act Rule 13d-3) of 40% or more of
either (A) the then outstanding shares of common stock of the Company (the
"Outstanding
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Company Common Stock") or (B) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in
the election of the Board (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not constitute an
Event:
(1) any acquisition of voting securities of the Company directly from
the Company,
(2) and acquisition of voting securities of the Company by the
Company or any of its wholly owned Subsidiaries,
(3) any acquisition of voting securities of the Company by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any of its Subsidiaries, or
(4) any acquisition by any corporation with respect to which,
immediately following such acquisition, more than 60% of, respectively,
the then outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to
such acquisition in substantially the same proportions as was their
ownership, immediately prior to such acquisition, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the
case may be;
(ii) Individuals who, as of the Effective Date, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the Effective Date whose election, or nomination for election
by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest which was (or, if
threatened, would have been) subject to Exchange Act Rule 14a-l l;
(iii) Approval by the shareholders of the Company of a reorganization,
merger, consolidation, or statutory exchange of Outstanding Company Voting
Securities, unless immediately following such reorganization, merger,
consolidation, or exchange, all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such reorganization, merger, consolidation, owned, directly or
indirectly, more than 60% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such reorganization, merger,
consolidation, or exchange in substantially the same proportions as was
their ownership, immediately prior to such reorganization, merger,
consolidation, or exchange, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be; or
(iv) Approval by the shareholders of the Company of (A) a complete
liquidation or dissolution of the Company or (B) the sale or other
disposition of all or substantially all of the assets of the Company, other
than to a corporation with respect to which, immediately following such
sale or other disposition, more than 60% of, respectively, the then
outstanding shares of common stock of such corporation and the combined
voting power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners, respectively,
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such sale or other disposition in
substantially the same proportion as was their ownership, immediately prior
to such sale or other disposition, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities, as the case may be.
(v) Notwithstanding the above, an Event shall not be deemed to occur with
respect to an employee if the acquisition of the 40% or greater interest
referred to in subsection (i) is by a group, acting in concert,
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that includes that recipient or if at least 40% of the then outstanding
common stock or combined voting power of the then outstanding voting
securities (or voting equity interests) of the surviving corporation or of
any corporation (or other entity) acquiring all or substantially all of the
assets of the Company shall be beneficially owned, directly or indirectly,
immediately after a reorganization, merger, consolidation, statutory share
exchange or disposition of assets referred to in subsections (iii) or (iv)
by a group, acting in concert, that includes that Participant.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(m) "Fair Market Value" as of any date means, unless otherwise expressly
provided in this Plan:
(i) the closing sale price of a Share on the date immediately preceding
that date or, if no sale of Shares shall have occurred on that date, on the
next preceding day on which a sale occurred of Shares on the National
Association of Securities Dealers, Inc. Automated Quotations National
Market System ("NMS"), or
(ii) if the Shares are not quoted on the NMS, what the Committee
determines in good faith to be 100% of the fair market value of a Share on
that date.
Provided, however, if the NMS has closed for the day at the time the event
occurs that triggers a determination of Fair Market Value, whether the grant
of an Award, the exercise of an Option or otherwise, all references in this
Section 2.1(m) to the "date immediately preceding that date" shall be deemed
to be references to "that date." In the case of an Incentive Stock Option, if
such determination of Fair Market Value is not consistent with the then
current regulations of the Secretary of the Treasury, Fair Market Value shall
be determined in accordance with said regulations. The determination of Fair
Market Value shall be subject to adjustment as provided in Section 13 hereof.
(n) "Fundamental Change" means a dissolution or liquidation of the Company,
a sale of substantially all of the assets of the Company, a merger or
consolidation of the Company with or into any other corporation, regardless of
whether the Company is the surviving corporation, or a statutory share
exchange involving capital stock of the Company.
(o) "Incentive Stock Option" means any Option designated as such and granted
in accordance with the requirements of Code Section 422 or any successor to
said section.
(p) "Non-Qualified Stock Option" means an Option other than an Incentive
Stock Option.
(q) "Option" means a right to purchase Stock, including both Non-Qualified
Stock Options and Incentive Stock Options.
(r) "Outside Directors" means those directors of Company who are not
employees of the Company or any Affiliate.
(s) "Performance Cycle" means the period of time as specified in an
Agreement over which Performance Units are to be earned.
(t) "Performance Units" means an Award made under Section 7.2 hereof
(u) "Plan" means this 1992 Stock Award Plan, as amended from time to time.
(v) "Restricted Stock" means Stock granted under Plan Section 7.3 so long as
such Stock remains subject to one or more restrictions.
(w) "Retirement" of an Employee means termination of employment with the
Company or an Affiliate on or after the date the Employee attains age 55.
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(x) "Share" means a share of Stock.
(y) "Stock" means the common stock, $.01 par value per share (as such par
value may be adjusted from time to time), of the Company.
(z) "Subsidiary" means a subsidiary corporation," as that term is defined in
Section 424(f) of the Code, or any successor provision.
(aa) "Successor" means the legal representative of the estate of a deceased
Participant or the person or persons who may, by bequest or inheritance, or
under the terms of an Award or of forms submitted by the Participant to the
Committee under Section 17 hereof, acquire the right to exercise an Option or
receive cash or Shares issuable in satisfaction of an Award in the event of an
employee's death.
(bb) "Term" means the period during which an Option may be exercised or the
period during which the restrictions or terms and conditions placed on
Restricted Stock are in effect.
(cc) "Transferee" means any member of the Participant's immediate family
(i.e., his or her children, step-children, grandchildren and spouse) or one or
more trusts for the benefit of such family members or partnerships in which
such family members are the only partners.
2.2 Number. Except when otherwise indicated by context, any term used in the
singular shall also include the plural.
3. Administration.
3.1 Authority of Committee.
(a) General. Except as provided in Section 3.1(b), the Committee shall
administer this Plan. The Committee may delegate all or any portion of its
authority under this Plan to persons who are not Disinterested Persons solely
for purposes of determining and administering Awards to Employees who are not
then subject to the reporting requirements of Section 16 of the Exchange Act.
The Committee shall have exclusive power to make Awards, to determine when and
to whom Awards will be granted, the form of each Award, the amount of each
Award, and any other terms or conditions of each Award. Each Award shall be
subject to an Agreement authorized by the Committee. The Committee's
interpretation of this Plan and of any Awards made under this Plan shall be
final and binding on all persons. The Committee shall have the power to
establish regulations to administer this Plan and to change such regulations.
(b) Options to Outside Directors. Notwithstanding any contrary provisions of
this Plan, the granting and terms, conditions, and eligibility requirements of
Awards granted to Outside Directors shall be determined by the Board of
Directors of the Company.
3.2 Indemnification. To the full extent permitted by law, (a) no member of
the Board or of the Committee or any person to whom the Committee delegates
authority under this Plan shall be liable for any action or determination
taken or made in good faith with respect to this Plan or any Award made under
this Plan and (b) the members of the Board and of the Committee and each
person to whom the Committee delegates authority under this Plan shall be
entitled to indemnification by the Company with regard to such actions and
determinations.
4. Shares Available Under this Plan. The number of Shares available for
distribution under this Plan shall not exceed 6,200,000 (subject to adjustment
as provided in this Section 4 and under Section 13 hereof). Any Shares subject
to the terms and conditions of an Award under this Plan that are not used
because the terms and conditions of the Award are not met may again be used
for an Award under this Plan. In addition, if, in accordance with this Plan,
an employee uses shares of Common Stock of the Company to (i) pay a purchase
or
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exercise price, including an Option exercise price, or (ii) satisfy tax
withholdings, only the number of shares issued net of the shares tendered in
payment of such purchase or exercise price and tax withholdings shall be
deemed to be issued for purposes of determining the maximum number of Shares
available under the Plan. Further, the maximum number of Shares available for
distribution under this Plan shall be increased to take into account any
Awards granted under Section 18 of this Plan.
5. Eligibility. Awards may be granted under this Plan to Employees and
Outside Directors, and such Awards shall have the terms and conditions
specified in Sections 6 and 7 hereof and elsewhere in this Plan. The granting
of Awards to Employees (other than Outside Directors) is solely at the
discretion of the Committee; the granting of Awards to Outside Directors is
solely at the discretion of the Board.
6. General Terms of Awards.
6.1 Amount of Award. Each Agreement with an Employee shall set forth the
number of Shares to which the Option subject to such Agreement applies or the
number of Shares of Restricted Stock, Stock, Performance Units subject to such
Agreement, as the case may be.
6.2 Term. Each Agreement, other than those relating solely to Awards of
Shares without restrictions, shall set forth the Term of the Option or
Restricted Stock or the Performance Cycle for the Performance Units, as the
case may be. An Agreement may permit an acceleration of the expiration of the
applicable Term upon such terms and conditions as shall be set forth in the
Agreement, which may, but need not, include without limitation acceleration
resulting from the occurrence of an Event or in the event of the Employee's
death or Retirement. Acceleration of the Performance Cycle of Performance
Units shall be subject to Section 7.2(b) hereof.
6.3 Agreements. Each Award under this Plan shall be evidenced by an
Agreement setting forth the terms and conditions, as determined by the
Committee, which shall apply to such Award, in addition to the terms and
conditions specified in this Plan.
6.4 Transferability. Except as provided in this Section 6.4, during the
lifetime of an employee to whom an Award is granted, only that Employee (or
that Employee's legal representative) may exercise an Option or receive
payment with respect to Performance Units or any other Award. No Award of
Restricted Stock (prior to the expiration of the restrictions), Options or
Performance Units or other Award may be sold, assigned, transferred, exchanged
or otherwise encumbered other than pursuant to a domestic relations order as
defined in the Code or Title 1 of the Employee Retirement Income Security Act
("ERISA") or the rules thereunder; any attempted transfer in violation of this
Section 6.4 shall be of no effect. Notwithstanding the immediately preceding
sentence, the Committee, in an Agreement or otherwise at its discretion, may
provide (i) that the Award subject to the Agreement shall be transferable to a
Successor in the event of an employee's death, or (ii) that the Award (other
than Incentive Stock Options) may be transferable to a Transferee if the
Employee receives no consideration for the transfer. Any Award held by a
Transferee shall continue to be subject to the same terms and conditions that
were applicable to such Award immediately prior to its transfer. By way of
example and not limitation, (i) an Option may be exercised by a Transferee as
and to the extent that such Option has become exercisable and has not
terminated in accordance with the provisions of the Plan and the applicable
Agreement and (ii) for purposes of any provision of this Plan relating to
notice to an optionee or to vesting or termination of an Option upon the
death, disability or termination of employment of an optionee, the references
to "optionee" shall mean the original grantee of an option and not any
Transferee.
7. Terms and Conditions of Specific Awards.
7.1 Stock Options.
(a) Terms of All Options. Each Option shall be granted as either an
Incentive Stock Option or a Non-Qualified Stock Option. Only Non-Qualified
Stock Options may be granted to Outside Directors and to Employees who are not
employees of the Company or an Affiliate but who provide services to the
Company or
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an Affiliate in the capacity of an advisor or consultant. The purchase price
of each Share subject to an Option shall be determined by the Committee and
set forth in the Agreement, but shall not be less than 100% of the Fair Market
Value of a Share as of the date the Option is granted. The purchase price of
the Shares with respect to which an Option is exercised shall be payable in
full at the time of exercise, provided that to the extent permitted by law,
the Agreement may permit some or all Participants simultaneously to exercise
Options and sell the Shares thereby acquired pursuant to a brokerage or
similar relationship and use the proceeds from such sale as payment of the
purchase price of such Shares. The purchase price may be payable in cash, in
Stock having a Fair Market Value as of the date the Option is exercised equal
to the purchase price of the Stock being purchased pursuant to the Option, or
a combination thereof as determined by the Committee and provided in the
Agreement. Each Option shall be exercisable in whole or in part on the terms
provided in the Agreement. In no event shall any Option be exercisable at any
time after its expiration date. When an Option is no longer exercisable, it
shall be deemed to have lapsed or terminated. The number of Shares for which
any Employee may be granted Options in any one calendar year shall not exceed
750,000. The Committee may provide, in an Agreement or otherwise, that an
employee who exercises an Option and pays the Option price in whole or in part
with Shares then owned by the Participant will be entitled to receive another
Option covering the same number of shares tendered and with a price of no less
than Fair Market Value on the date of grant of such additional Option ("Reload
Option").
(b) Incentive Stock Options. In addition to the other terms and conditions
applicable to all Options:
(i) the maximum number of shares that may be awarded with respect to
incentive stock options is 6,200,000.
(ii) the aggregate Fair Market Value (determined as of the date the
Option is granted) of the Shares with respect to which Incentive Stock
Options held by an individual first become exercisable in any calendar year
(under this Plan and all other incentive stock option plans of the Company
and its Affiliates) shall not exceed $100,000 (or such other limit as may
be required by the Code) if such limitation is necessary to qualify the
Option as an Incentive Stock Option;
(iii) an Incentive Stock Option shall not be exercisable more than 10
years after the date of grant (or such other limit as may be required by
the Code) if such limitation is necessary to qualify the Option as an
Incentive Stock Option; and
(iv) the Agreement covering an Incentive Stock Option shall contain such
other terms and provisions which the Committee determines necessary to
qualify such Option as an Incentive Stock Option.
7.2 Performance Units.
(a) Initial Award. An Award of Performance Units shall entitle such
Participant (or a Successor) to future payments of cash, Stock, or a
combination of cash and Stock, as determined by the Committee and provided in
the Agreement, based upon the achievement of performance targets established
by the Committee and consisting of one or any combination of two or more of
net earnings, before or after income taxes; gross revenues; operating
expenses; operating income; total shareholder return; return on assets; cash
generation targets; or market share targets. As appropriate any such targets
may be expressed in absolute amounts, on a per share basis or as a percentage
change from a preceding performance period. Such performance targets may, but
need not, include without limitation targets relating to one or more of
corporate, group, unit, Affiliate, or individual performance. The Agreement
may establish that a portion of a full or maximum amount of an employee's
Award will be paid for performance which exceeds the minimum target but falls
below the maximum target applicable to such Award. The Agreement shall also
provide for the timing of such payment. Following the conclusion or
acceleration of each Performance Cycle, the Committee shall determine the
extent to which (i) performance targets have been attained, (ii) any other
terms and conditions with respect to an Award relating to such Performance
Cycle have been satisfied, and (iii) payment is due with respect to an Award
of Performance Units. The maximum payment that can be made for awards granted
to any one individual shall be $1,000,000 for any single or combined
performance goals established for a specified performance period.
(b) Acceleration and Adjustment. The Agreement may permit an acceleration of
the Performance Cycle and an adjustment of performance targets and payments
with respect to some or all of the Performance Units awarded to an employee
upon such terms and conditions as shall be set forth in the Agreement, upon
the occurrence of
A-6
<PAGE>
certain events, which may, but need not include without limitation an Event, a
Fundamental Change, the Participant's death or Retirement or, with respect to
payments in Stock with respect to Performance Units, a reclassification, stock
dividend, stock split, or stock combination as provided in Section 13 hereof.
7.3 Restricted Stock Awards
(a) The Committee is authorized to grant, either alone or in conjunction
with other Awards, stock and stock-based Awards. The Committee shall determine
the persons to whom such Awards are made, the timing and amount of such
Awards, and all other terms and conditions. Company Common Stock granted to
recipients may be unrestricted or may contain such restrictions, including
provisions requiring forfeiture and imposing restrictions upon stock transfer,
as the Committee may determine. Unless forfeited, the recipient of restricted
Common Stock will have all other rights of a shareholder, including without
limitation, voting and dividend rights. No more than 500,000 shares, in the
aggregate in the form of restricted stock and stock shall be issued under the
Stock Award Plan.
(b) An Award of Restricted Stock under the Plan shall consist of Shares
subject to restrictions on transfer and conditions of forfeiture, which
restrictions and conditions shall be included in the applicable Agreement. The
Committee may provide for the lapse or waiver of any such restriction or
condition based on such factors or criteria as the Committee, in its sole
discretion, may determine.
(c) Except as otherwise provided in the applicable Agreement, each Stock
certificate issued with respect to an Award of Restricted Stock shall either
be deposited with the Company or its designee, together with an assignment
separate from the certificate, in blank, signed by the Participant, or bear
such legends with respect to the restricted nature of the Restricted Stock
evidenced thereby as shall be provided for in the applicable Agreement.
(d) The Agreement shall describe the terms and conditions by which the
restrictions and conditions of forfeiture upon awarded Restricted Stock shall
lapse. Upon the lapse of the restrictions and conditions, Shares free of
restrictive legends, if any, relating to such restrictions shall be issued to
the Participant or a Successor or Transferee.
(e) An employee or a Successor or Transferee with a Restricted Stock Award
shall have all the other rights of a shareholder including, but not limited
to, the right to receive dividends and the right to vote the Shares of
Restricted Stock.
7.4 Other Awards. The Committee may from time to time grant Stock and other
Awards under the Plan including without limitations those Awards pursuant to
which Shares are or may in the future be acquired, Awards denominated in Stock
units, securities convertible into Stock and Phantom securities. The
Committee, in its sole discretion, shall determine the terms and conditions of
such Awards provided that such Awards shall not be inconsistent with the terms
and purposes of this Plan. The Committee may, at its sole discretion, direct
the Company to issue Shares subject to restrictive legends and/or stop
transfer instructions that are consistent with the terms and conditions of the
Award to which the Shares relate. Furthermore, the Committee may use stock
available under this Plan as payment for compensation, grants or rights and
earned or due under any other compensation plans or arrangements of the
Company. No more than 500,000 shares in the aggregate in the form of
restricted stock and stock shall be issued under the Stock Award Plan.
8. Terms and Conditions of Outside Director Awards.
8.1 Outside Directors may, in the discretion of the Board and in accordance
with the terms of this Plan, be granted Awards under this Plan at various
times, including when an Outside Director is first elected or appointed to the
Board, when an Outside Director is re-elected to the Board or at other times
as may be deemed appropriate.
8.2 Terms of Awards. In addition to the terms set forth in Section 7.1 of
this Plan, Outside Director Awards may contain such other terms and conditions
as the Board determines.
A-7
<PAGE>
9. Effective Date of this Plan.
9.1 Effective Date. This Plan shall become effective as of March 5, 1992,
the date of adoption of this Plan by the Board, provided that this Plan is
approved and ratified by the affirmative vote of the holders of a majority of
the outstanding Shares of Stock present or represented and entitled to vote in
person or by proxy at a meeting of the shareholders of the Company no later
than December 31, 1992.
9.2 Duration of this Plan. This Plan shall remain in effect until all Stock
subject to it shall be distributed or all Awards have expired or lapsed,
whichever is latest to occur, or this Plan is terminated pursuant to
Section 12 hereof. No Award of an Incentive Stock Option shall be made more
than 10 years after the effective date (or such other limit as may be required
by the Code) if such limitation is necessary to qualify the Option as an
Incentive Stock Option. Except with respect to Director Options, the date and
time of approval by the Committee of the granting of an Award (or such other
time as the Committee shall designate) shall be considered the date and time
at which such Award is made or granted, notwithstanding the date of any
Agreement with respect to such Award.
10. Right to Terminate Employment. Nothing in this Plan or in any Agreement
shall confer upon any Employee the right to continue in the employment of the
Company or any Affiliate or affect any right which the Company or any
Affiliate may have to terminate the employment of the Employee with or without
cause.
11. Tax Withholding. The Company may withhold from any cash payment under
this Plan to an employee or other person (including a Successor or a
Transferee) an amount sufficient to cover any required withholding taxes. The
Company shall have the right to require an employee or other person receiving
Stock under this Plan to pay to the Company a cash amount sufficient to cover
any required withholding taxes. In lieu of all or any part of such a cash
payment from a person receiving Stock under this Plan, the Committee may
permit the individual to elect to cover all or any part of the required
withholdings, and to cover any additional withholdings up to the amount needed
to cover the individual's full FICA and federal, state, and local income tax
with respect to income arising from payment of the Award, through a reduction
of the number of Shares delivered to such individual or a subsequent return to
the Company of Shares held by the Employee or other person, in each case
valued in the same manner as used in computing the withholding taxes under the
applicable laws.
12. Amendment, Modification and Termination of this Plan.
(a) The Board may at any time and from time to time terminate, suspend or
modify the Plan. Except as limited in (b) below, the Committee may at any time
alter or amend any or all Agreements under the Plan to the extent permitted by
law. However, no such action may, without further approval of the shareholders
of the Company, be effective if such approval is required in order that the
Plan conform to the requirements of Code Section 422.
(b) No termination, suspension, or modification of the Plan will materially
and adversely affect any right acquired by any Participant or Successor or
Transferee under an Award granted before the date of termination, suspension,
or modification, unless otherwise agreed to by the Participant in the
Agreement or otherwise, or required as a matter of law; but it will be
conclusively presumed that any adjustment for changes in capitalization
provided for in Plan Sections 7.2 or 13 does not adversely affect these
rights.
13. Adjustment for Changes in Capitalization. Appropriate adjustments in the
aggregate number and type of Shares available for Awards under this Plan and
in the number and type of Shares and amount of cash subject to Awards then
outstanding, in the Option price as to any outstanding Options and, subject to
Section 7.2(b) hereof, in outstanding Performance Units and payments with
respect to outstanding Performance Units may be made by the Committee in its
sole discretion to give effect to adjustments made in the number or type of
Shares of the Company through a Fundamental Change (subject to Section 14
hereof), recapitalization, reclassification, stock dividend, stock split,
stock combination, or other relevant change, provided that fractional Shares
shall be rounded to the nearest whole share.
A-8
<PAGE>
14. Fundamental Change. In the event of a proposed Fundamental Change: (a)
involving a merger, consolidation, or statutory share exchange, unless
appropriate provision shall be made for the protection of the outstanding
Options by the substitution of options and appropriate voting common stock of
the corporation surviving any such merger or consolidation or, if appropriate,
the parent corporation of the Company or such surviving corporation, to be
issuable upon the exercise of options in lieu of Options and capital stock of
the Company, or (b) involving the dissolution or liquidation of the Company,
the Committee shall declare, at least 20 days prior to the occurrence of the
Fundamental Change, and provide written notice to each holder of an Option of
the declaration, that each outstanding Option, whether or not then
exercisable, shall be canceled at the time of, or immediately prior to the
occurrence of the Fundamental Change in exchange for payment to each holder of
an Option, within ten days after the Fundamental Change, of cash equal to the
amount, if any, for each Share covered by the canceled Option, by which the
Fair Market Value (as defined in this Section) per Share exceeds the exercise
price per Share covered by such Option. At the time of the declaration
provided for in the immediately preceding sentence, each Option shall
immediately become exerciseable in full and each person holding an Option
shall have the right, during the period preceding the time of cancellation of
the Option, to exercise the Option as to all or any part of the Shares covered
thereby; provided, however, that if such Fundamental Change does not become
effective, then the declaration pursuant to this Section 14(b) shall be
rescinded, the acceleration of the exercisibility of the Option pursuant to
this Section 14(b) shall be void, and the Option shall be exercisable in
accordance with its terms. In the event of a declaration pursuant to this
Section 14, each outstanding Option that shall not have been exercised prior
to the Fundamental Change shall be canceled at the time of, or immediately
prior to, the Fundamental Change, as provided in the declaration.
Notwithstanding the foregoing, no person holding an Option shall be entitled
to the payment provided for in this Section 14 if such Option shall have
expired pursuant to an Agreement. For purposes of this Section only, "Fair
Market Value" per Share means the cash plus the fair market value, as
determined in good faith by the Committee, of the non-cash consideration to be
received per Share by the shareholders of the Company upon the occurrence of
the Fundamental Change, notwithstanding anything to the contrary provided in
this Plan.
15. Unfunded Plan. This Plan shall be unfunded and the Company shall not be
required to segregate any assets that may at any time be represented by Awards
under this Plan.
16. Other Benefit and Compensation Programs. Payments and other benefits
received by an employee under an Award shall not be deemed a part of an
employee's regular, recurring compensation for purposes of any termination,
indemnity, or severance pay laws and shall not be included in, nor have any
effect on, the determination of benefits under any other employee benefit
plan, contract, or similar arrangement provided by the Company or an
Affiliate, unless expressly so provided by such other plan, contract, or
arrangement or the Committee determines that an Award or portion of an Award
should be included to reflect competitive compensation practices or to
recognize that an Award has been made in lieu of a portion of competitive cash
compensation.
17. Beneficiary Upon Employee's Death. To the extent that the transfer of an
employee's Award at death is permitted under an Agreement, (a) an employee's
Award shall be transferable to the beneficiary, if any, designated on forms
prescribed by and filed with the Committee and (b) upon the death of the
Employee, such beneficiary shall succeed to the rights of the Employee to the
extent permitted by law and this Plan. If no such designation of a beneficiary
has been made, the Participant's legal representative shall succeed to the
Awards, which shall be transferable by will or pursuant to laws of descent and
distribution to the extent permitted under an Agreement.
18. Corporate Mergers, Acquisitions, Etc. The Committee may also grant
Options, Restricted Stock or other Awards under the Plan having terms,
conditions and provisions that vary from those specified in this Plan provided
that any such awards are granted in substitution for, or in connection with
the assumption of, existing options, stock appreciation rights, restricted
stock or other awards granted, awarded or issued by another corporation and
assumed or otherwise agreed to be provided for by the Company pursuant to or
by reason of a transaction involving a corporate merger, consolidation,
acquisition of property or stock, separation, reorganization or liquidation to
which the Company or a subsidiary is a party.
A-9
<PAGE>
19. Deferrals and Settlements. The Committee may require or permit Employees
to elect to defer the issuance of Shares or the settlement of Awards in cash
under such rules and procedures as it may establish under the Plan. It may
also provide that deferred settlements include the payment or crediting of
interest on the deferral amounts.
20. Governing Law. To the extent that federal laws do not otherwise control,
this Plan and all determinations made and actions taken pursuant to this Plan
shall be governed by the laws of Minnesota and construed accordingly.
A-10
<PAGE>
COMPUTER NETWORK TECHNOLOGY CORPORATION
ANNUAL MEETING OF SHAREHOLDERS MAY 19, 1998
605 NORTH HIGHWAY 169, SUITE 800, MINNEAPOLIS, MINNESOTA 55441
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned, having duly received the Notice of Annual Meeting and Proxy
Statement dated April 6, 1998, hereby appoints Gregory T. Barnum and Jeffrey A.
Bertelsen as proxies (each with the power to act alone and with the power of
substitution and revocation), to represent the undersigned and to vote, as
designated on the reverse side, all shares of Common Stock of Computer Network
Technology Corporation held of record by the undersigned on March 23, 1998, at
the Annual Meeting of Shareholders to be held on May 19, 1998 at the Marquette
Hotel in the IDS Center, 50th Floor Universe Room, 710 Marquette Avenue,
Minneapolis, Minnesota, at 10:00 a.m. and any adjournment or postponement
thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ALL NOMINEES IN PROPOSAL NO. 1, AND FOR PROPOSALS NO. 2, 3, AND 4.
THE PROXIES ARE AUTHORIZED TO VOTE IN THEIR DISCRETION WITH RESPECT TO OTHER
MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING.
(Continued on reverse side)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
Please mark
your votes
as indicated in
this example /X/
1. ELECTION OF DIRECTORS
FOR WITHHOLD
all nominees listed AUTHORITY
(except as marked to vote for
to the contrary all nominees
at right) listed
------ ------
| | | |
| | | |
------ ------
NOMINEES: Thomas G. Hudson, Patrick W. Gross, Erwin A. Kelen, Lawrence Periman,
and John A. Rollwagen
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)
- ----------------------------------------------------------
2. PROPOSAL TO AMEND AND RESTATE THE 1992 STOCK AWARD PLAN to, among other
things, increase the number of shares authorized for issuance by 800,000.
FOR AGAINST ABSTAIN
------ ------ ------
| | | | | |
| | | | | |
------ ------ ------
3. PROPOSAL TO AMEND THE 1992 EMPLOYEE STOCK PURCHASE PLAN to increase the
number of shares authorized for issuance by 300,000.
FOR AGAINST ABSTAIN
------ ------ ------
| | | | | |
| | | | | |
------ ------ ------
4. PROPOSAL TO RATIFY THE APPOINTMENT OF KPMG PEAT MARWICK LLP as the
independent auditors for the Company for the fiscal year ending
December 31, 1998.
FOR AGAINST ABSTAIN
------ ------ ------
| | | | | |
| | | | | |
------ ------ ------
5. The Proxies are authorized to vote in their discretion upon such other
business as may properly come before the meeting.
PLEASE SIGN exactly as name appears on this card. When shares are held by joint
tenants, both should sign. If signing as attorney, executor, administrator,
trustee, or guardian, please give full title as such. If a corporation, please
sign in full corporate name by president or other authorized officer. If a
partnership, please sign in partnership name by an authorized person.
Dated:
--------------------------------
- ---------------------------------------
(Signature)
- ---------------------------------------
(Signature)
PLEASE MARK, SIGN, DATE, AND RETURN
THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
1998 - COMPUTER NETWORK TECHNOLOGY CORPORATION-VOTING INSTRUCTION CARD
401(k) SALARY SAVINGS PLAN
ANNUAL MEETING OF SHAREHOLDERS
MAY 19, 1998 - 10:00 A.M.
MARQUETTE HOTEL IN THE IDS CENTER, 50TH FLOOR UNIVERSE ROOM,
710 MARQUETTE AVENUE, MINNEAPOLIS, MN
DIRECTIONS: As a participant in the Computer Network Technology Corporation
401(k) Salary Savings Plan, you are entitled to instruct the Plan's Trustee,
CIGNA Corporation, how to vote the shares of Computer Network Technology
Corporation stock allocated to you under the Plan at the Annual Meeting of
Shareholders to be held on May 19, 1998, and at any adjournment or postponement
thereof, upon the matters set forth in the Notice of such meeting. Please
complete this card and mail it in the enclosed postage-paid envelope provided to
you. It must be received no later than May 7, 1998.
VOTING INSTRUCTIONS: I, the participant in the Computer Network Technology
Corporation 401(k) Salary Savings Plan signing this voting instruction card,
hereby instruct the Plan's Trustee, CIGNA Corporation, to vote the shares of
Computer Network Technology Corporation stock allocated to me under the
foregoing Plan.
(Continued On Reverse Side)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
Please mark
your votes
as indicated in
this example /X/
1. ELECTION OF DIRECTORS
FOR WITHHOLD
all nominees listed AUTHORITY
(except as marked to vote for
to the contrary all nominees
at right) listed
------ ------
| | | |
| | | |
------ ------
NOMINEES: Thomas G. Hudson, Patrick W. Gross, Erwin A. Kelen, Lawrence Periman,
and John A. Rollwagen
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)
- ----------------------------------------------------------
2. PROPOSAL TO AMEND AND RESTATE THE 1992 STOCK AWARD PLAN to, among other
things, increase the number of shares authorized for issuance by 800,000.
FOR AGAINST ABSTAIN
------ ------ ------
| | | | | |
| | | | | |
------ ------ ------
3. PROPOSAL TO AMEND THE 1992 EMPLOYEE STOCK PURCHASE PLAN to increase the
number of shares authorized for issuance by 300,000.
FOR AGAINST ABSTAIN
------ ------ ------
| | | | | |
| | | | | |
------ ------ ------
4. PROPOSAL TO RATIFY THE APPOINTMENT OF KPMG PEAT MARWICK LLP as the
independent auditors for the Company for the fiscal year ending
December 31, 1998.
FOR AGAINST ABSTAIN
------ ------ ------
| | | | | |
| | | | | |
------ ------ ------
5. The Proxies are authorized to vote in their discretion upon such other
business as may properly come before the meeting.
PLEASE SIGN exactly as name appears on this card. When shares are held by joint
tenants, both should sign. If signing as attorney, executor, administrator,
trustee, or guardian, please give full title as such. If a corporation, please
sign in full corporate name by president or other authorized officer. If a
partnership, please sign in partnership name by an authorized person.
Dated:
--------------------------------
- ---------------------------------------
(Signature)
- ---------------------------------------
(Signature)
PLEASE MARK, SIGN, DATE, AND RETURN
THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
